Citi Awards CEO $11.5 Million in Pay

By

Suzanne Kapner

Updated Feb. 21, 2013 7:21 p.m. ET

Citigroup
Inc.
awarded Chief Executive
Michael Corbat
$11.5 million for 2012, a year in which he took over the third-largest U.S. bank by assets in a surprise October shake-up and set plans to cut 11,000 jobs.

The figure puts Mr. Corbat's compensation on par with that of
James Dimon
,
chairman and chief executive of
J.P. Morgan Chase
& Co. For 2012, net income was $7.54 billion at Citigroup and $21.3 billion at J.P. Morgan.

Citigroup also outlined a new pay plan that ties compensation to stock performance and return on assets, a measure of the New York company's profitability relative to its size.

ENLARGE

Michael Corbat, CEO of Citigroup
Bloomberg News

The new plan was announced after The Wall Street Journal reported that Citigroup is shelving an unusual executive profit-sharing arrangement that raised hackles with investors following its adoption in 2011.

Citigroup's moves come as Chairman
Michael E. O'Neill
seeks to avoid repeating last spring's defeat in a shareholder-advisory vote on compensation known as "say on pay." Citigroup was alone among major lenders in having its plan rejected by investors.

"Citigroup lost their say-on-pay vote because there was too much discretion in the way compensation was awarded," said
Robin Ferracone,
founder and chief executive of Farient Advisors, an executive-compensation consulting firm based in Los Angeles. "Citigroup has addressed that issue head-on by putting objective measures and goals in the plan."

Large financial firms are under scrutiny for their pay practices following their rescue by taxpayers during the financial crisis and a long period of poor stock performance.

J.P. Morgan's Mr. Dimon had his pay cut in half for 2012 to $11.5 million, after the nation's largest bank by assets suffered a $6 billion trading loss.
Morgan Stanley
cut the pay of Chairman and Chief Executive
James Gorman
after revenue at the New York securities firm tumbled 19% from a year earlier to $26.11 billion.

Soon after taking over as chairman in April, Mr. O'Neill put himself in charge of the five-person board group that sets executive pay. He spent much of the summer and fall meeting with corporate-governance experts at proxy-advisory firms as well as 20 Citigroup investors representing more than 30% of the company's shares outstanding.

The new compensation plan dictates that 30% of pay for top executives, including Mr. Corbat, come in so-called performance share units that are delivered after three years, depending on the company's performance over that span.

Other executives eligible for the performance-share units include
John Gerspach,
the chief financial officer, and
Manuel Medina-Mora,
a co-president with oversight of global consumer banking.

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Similarly, if Citigroup's return on assets—annual net income divided by total assets—falls below 0.6%, executives won't get any units.

Citigroup's return on assets in 2012 was 0.4%, compared with 0.59% in 2011.

But if the company's shares perform in line with rivals and the return on assets hits 0.85%, executives can receive 100% of their target performance-unit allocation. If returns rise further, executives can collect 150% of that allocation.

The profit-sharing plan being scrapped emerged as a sticking point in Mr. O'Neill's conversations with shareholders and corporate-governance experts, said people with knowledge of the talks, amid broader concerns about how the company pays top executives and how it discloses those practices to shareholders.

Citigroup's say-on-pay defeat helped paved the way for last October's departure of Chief Executive
Vikram Pandit
.
In 2011, his compensation rose to $14.9 million from the $1 he received annually while the company repaid $45 billion of federal bailout funds.

Some shareholders contended the profit-sharing plan made it too easy for executives to collect large sums without ensuring outstanding company and stock performance.

"When there are this many issues, the board needs to start from scratch," said
Aeisha Mastagni,
investment officer of the California State Teachers Retirement System, which owns nine million Citigroup shares.

The decision to allow the expiration of the incentive plan wasn't driven by the say-on-pay defeat, said people familiar with the company.

Ms. Mastagni was one of a handful of pension- and mutual- fund managers who voiced their concerns on an Aug. 15 conference call with Mr. O'Neill.

Mr. Pandit's retention package included a profit-sharing plan that would have paid him in excess of $6 million if cumulative pretax profit for ongoing operations in 2011 and 2012 totaled $12 billion, providing he had remained with the company. That is less than what Citigroup earned before taxes in 2010.

"When the threshold is set so low, that is not good corporate governance," said Ms. Ferracone of Farient Advisors.

Mr. Pandit and his deputy,
John Havens
,
who served as Citigroup's president and chief operating officer, were forced out before the first leg of the award was payable and will collect nothing.

"When our shareholders spoke last year about Citi's compensation structure, we listened," Mr. O'Neill said in a regulatory filing Wednesday.

Corrections & Amplifications An earlier version of this article described Aeisha Mastagni as chief investment officer of the California State Teachers Retirement System. She is an investment officer there.

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